Question: XYZ Corp. is considering introducing a new 90 flat screen television/monitor for the consumer market. The company's CFO has collected the following information about the
XYZ Corp. is considering introducing a new 90" flat screen television/monitor for the consumer market. The company's CFO has collected the following information about the proposed product. The company will have to purchase a new machine to produce the screens. The machine's after-tax price would be $4,000,000 and it would cost an additional $20,000 (after-tax) to install the equipment. The machine required for the project was fully depreciated at the time of purchase. The company anticipates that the machine will last for four years and then have no salvage value. If the company goes ahead with the proposed product, it will have an effect on the company's net working capital. At the outset (i.e., at t = 0), inventory will increase by $190,000 and accounts payable will increase by $70,000. At t = 4, the net working capital will be recovered after the project is completed. The company's tax rate is 25% What is the terminal year (t=4) non-operating cash flow?
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